چکیده انگلیسی

This paper applies the error-correction model to examine the causal relationship between electricity consumption and real GDP for China during 1971–2000. Our estimation results indicate that real GDP and electricity consumption for China are cointegrated and there is unidirectional Granger causality running from electricity consumption to real GDP but not vice versa. In order to overcome the constraints on electricity consumption, the Chinese government has to speed up the nation-wide interconnection of power networks, to upgrade urban and rural distribution grids, and to accelerate rural electrification.

مقدمه انگلیسی

In the past two decades, China has achieved rapid economic growth, and emerged as the second largest electricity consumer in the world, just behind the United States. Historically, the electric power industry was designated as a driving force of China's economic growth. In line with the rapid expansion of the Chinese economy after the late 1970s, there has been an increasing demand for electricity. In the past two decades, there has also been a growing interest in the study of the causal relationship between energy consumption and economic growth. However, it was surprising that so far there has been no empirical work on China. The purpose of this paper is to fill the gap in the empirical literature on the causal relationship between electricity and income, by studying the situation of China.
At present, the Chinese government has a policy target of achieving a sustained growth rate of 7% per year. This implies that total output will be doubled every 10 years. The study of the causal relationship between electricity consumption and GDP will help us better understand the role of electricity in China's economic growth. The results of causality tests can shed light on future electricity policies, such as conservation programs, the planning of capacity expansion and the construction of nation-wide interconnection of power networks. Therefore, it is important to understand the relationship between electricity and income, should China want to avoid the electricity shortages that occasionally hampered its economic growth in the past.
The study of the causal relationship between energy consumption and economic growth started with the seminal work of Kraft and Kraft (1978), in which causality was found to run from GNP to energy consumption in the United States. Empirical studies were later extended to cover other industrial countries like the United Kingdom, Germany, Italy, Canada, France, and Japan (Yu and Choi, 1985; Erol and Yu, 1987). In subsequent studies, instead of relying on the standard Granger causality test, the cointegration and error-correction models were applied to test for stationarity of the variables in the time-series. Moreover, some studies (e.g. Stern, 1993; Stern, 2000) tested for Granger causality in a multivariate setting by using a vector autoregression model.
In recent years, empirical works on the causal relationship between energy consumption and economic growth have been focused on Asian economies. For example, Glasure and Lee (1997) have examined the causal relationship between energy consumption and GDP for South Korea and Singapore. The results of the cointegration and error-correction models indicate bidirectional causality for both countries. In contrast, Granger causality tests show a unidirectional relationship running from energy to GDP for Singapore, but no causal relationship between energy and GDP for South Korea. The results for South Korea contrast with those of the Yu and Choi (1985) study, which showed unidirectional causality from GNP to energy consumption based on the standard Granger test.
The results of studies for Taiwan, another newly industrialized economy, are also mixed. Cheng and Lai (1997) find causality running from GDP to energy consumption without feedback, while Yang (2000) finds bidirectional causality in his study. Yang's result is consistent with the findings of an earlier study done by Hwang and Gum (1992). He attributes the difference between his result and that of Cheng and Lai to the use of different sample periods, and the choice of different price indexes in measuring real GDP. Masih and Masih (1998) have applied Johansen's multiple cointegration tests for the cointegration of the energy consumption, real income, and price levels of two less-developed Asian countries: Thailand and Sri Lanka. They find that energy consumption is itself relatively exogenous, and conclude that it plays an important role in influencing income and prices.
Recently, Asafu-Adjaye (2000) has used cointegration and error-correction modeling techniques to estimate the causal relationships for India, Indonesia, the Philippines, and Thailand. His results indicate a short-run unidirectional Granger causality running from energy to GDP for India and Indonesia, but a bidirectional relationship for the other two countries. Asafu-Adjaye's empirical results for Indonesia and the Philippines are different from other studies (Yu and Choi, 1985; Masih and Masih, 1996). Moreover, he includes energy prices in his study, and finds that energy, income, and prices are mutually causal for the Philippines and Thailand. For India and Indonesia, however, the causality is unidirectional, running from energy and prices to income. The results for India in Asafu-Adjaye's study contrasts with those obtained from Ghosh (2002). Ghosh has applied Granger causality test on the bivariate vector autoregressive model (VAR) to test for causal relationship for India. Similar to our study, he focuses on a particular form of energy, i.e. electricity. The results indicate that there is unidirectional Granger causality running from economic growth to electricity consumption without any feedback effect.
In Table 1, we summarize the empirical findings of the causality tests between energy/electricity and income for a number of Asian economies.Despite the expanding literature on the study of causal relationships between energy and income for Asian economies, as mentioned at the beginning, there has been no empirical work on China, the “great dragon” in Asia. The purpose of this paper is to fill the gap by studying the causal relationship between electricity and income for China. In Section 2, we outline the background of the historical development of the electric power industry in China. Following this, Section 3 contains a discussion of the methodology and data used in our study. We report our empirical findings in Section 4. Based on the findings, we draw conclusion and provide policy implications of our causality study in the final section.

نتیجه گیری انگلیسی

This paper applies the ECM model to examine the causal relationship between electricity consumption and real GDP for China. Prior to testing for causality, the ADF test and Johansen maximum likelihood test were used to examine for unit roots and cointegration. Our estimation results indicate that there is a unidirectional relationship running from electricity consumption to real GDP, i.e. an increase in electricity consumption would raise real GDP but not the reverse. Our empirical findings support the notion that there has been a decoupling of electricity consumption and economic growth. The rate of growth of electricity consumption is not a direct one-to-one correlation with GDP growth. The rapid growth in GDP might not trigger the similar growth in electricity consumption. This direction of causation shed light on future electricity policies regarding environmental protection, generation, transmission and distribution.
In the period under study, around 70%–80% of the electricity consumption is for industrial production. Since industrial production contributes a large share of GDP, the growth in industrial demand for electricity increases industrial output and which, in turn, raises the real GDP of China. This implies that growth in electricity consumption causes real GDP growth via industrial demand for electricity. Given this situation, any shocks to electricity supply will adversely affect industrial output and thereby reducing real GDP growth.
In order to avoid any adverse effect of electricity shortages on industrial production, it is important for the Chinese government to plan, and build enough generating capacity to satisfy industrial demand for electricity. These could be achieved through attracting new capital to the power industry. However, the economy's reliance on coal for power generation will worsen environmental conditions. The government's long-term electricity policy should be focused on developing new sources of fuel, like natural gas, to replace low-quality coal, and on improving thermal efficiency of power generation. Since China has the world's largest unexploited hydropower potential, the government should continue her efforts to develop more hydropower reserves.
Despite strong electricity consumption in the industrial sector, China's per capita consumption of electricity is still low (about one-third of the world's average level). When the income and living standards of the population increase, demand for electricity will increase via the increasing demand for electrical appliances and other consumer durable goods. But at present a large number of rural population still have no access to electricity and some areas still face the problem of power shortages. Insufficient capital investment in power generation and transmission, higher tariffs and fees imposed on consumers in rural areas have deterred the natural growth of electricity consumption. Before the mid-1990s, frequent outages in electricity supply had adversely affected industrial production and electricity consumption. Therefore, it is not surprising to find that rapid real GDP growth did not cause a corresponding increase in electricity consumption in China, as our results indicate.
Apart from the problem of capital constraint on expanding electricity supply to the rural areas, the decoupling of electricity consumption and GDP growth can be a result of improvement in energy efficiency. There is more and more evidence suggesting that the Chinese economy is more energy efficient today than a decade ago (China Electric Power Information Center, 2000; Hirschhausen and Andres, 2000; Sinton and Fridley, 2000). Contrary to other developing countries, both the energy intensity and electricity intensity in China have been below unity over the last decade. In other words, one unit of electricity consumption can support more than one unit of GDP. Two major reasons are proposed for the fall in electricity intensity: they are improvement in electricity efficiency of electrical appliances and equipment, and conservation efforts to reduce electricity consumption. It is argued that electricity demand in China has shifted from quantitative to qualitative growth. Hence, it is not surprising to find that rapid GDP growth did not lead to corresponding growth in electricity consumption.
In order to overcome the constraints on electricity consumption, the Chinese government has to speed up the nation-wide interconnection of power networks, to upgrade urban and rural distribution grids, and to accelerate rural electrification. Tariff reforms are needed to remove the price differentials between rural and urban areas. These policies will have the effects of improving the efficiency in power transmission and distribution, alleviating the problem of power shortages, and allowing the rural population to enjoy a higher level of electricity consumption when the economy of China continues to achieve remarkable growth.